On Transaction Cost and Choosing of Firm Institutions

The nature of transactions is the interpersonal relations. Because of the uncertainty of market, the bounded rationality and opportunism of the human beings, and so on, transaction is the process in which scarce resources are consumed, thus bringing about transacition cost. The firm is not only production relations, but also transaction relations, so the costs of the firm include production costs and transaction costs. One of the principle functions is to reduce transaction costs, so transaction cost is an important factor by which firm institutions are chosen.